Management control systems and organisational learning in a changing environment: an investigation in an industry undergoing coercive environmental change

This thesis examines the role of management control systems, 'strategy and organisational learning in organisational response to environmental change. The ability to change or learn on an organisation-wide basis when faced with environmental change is critical to organisational survival. The three concepts of strategy, management control systems and organisational learning provide insights into the ways in which organisations adapt to their environment and to environmental change. Although management control systems and strategy are both commonly defined in terms of fitting the organisation to its environment, as is organizational learning, there have been few previous studies that have concentrated on the relationships between all three concepts. This empirical research was undertaken in local government in Victoria, an industry undergoing severe environmental turbulence. A naturalistic and interpretivist approach was taken in this research. Data was collected using a questionnaire administered across the industry to gain a broad view of the characteristics of the management control systems within the industry, and to classify those systems. Case studies were used to establish how members of each classific environmental change, and to examine the relationship between system characteristics and organisational learning. The results indicated that the strategy variable as defined in this and previous research did not allow sufficient differentiation to explain differences in the ways in which local governments responded to change. However, the differences in management control system characteristics were sufficient to obtain a three level classification of management control systems in local government. The case study results indicate that differences in management control system design and use are associated with differences in the ways that organisations respond to environmental change. Some management control systems assist the organisation to be proactive in seeking innovative new paradigms to effect organisational learning and organisational change in the face of environmental change. Other management control systems allow organisations to continue to operate using obsolete paradigm, and diminish the organisation's ability to learn and to change in response to environmental change. Organisations with management control systems exhibiting the characteristics of strong planning techniques, high use of environmental scanning, scheduled and ad hoc service and program reviews, strong cost control techniques, efficiency and effectiveness based performance evaluation, formal staff development programs, participative decision making, an interactive use of planning and review processes and liaison devices to integrate departmental activities can better respond to environmental change. They are more likely to undertake paradigmatic change when old paradigms become obsolete than are organisations lacking these characteristics. Organisations which limit the use of strategic planning and service review to a few senior managers, with power delegated to a few senior managers, and which have weak planning processes. There are policy implications arising from the results of this research for authorities wishing to effect change in organisations under their control. Change may not be achieved by legislation and regulation alone. As a first step, it may be necessary for governments wishing to achieve change to assist organisations to modify their management control systems. Management control systems can affect the ways in which environmental changes are perceived, and the ways in which the organisations learn in response to these changes, so change in management control systems may be necessary to allow organisations to recognise that they do need to change processes, little environmental scanning, weak cost control and efficiency rather than effectiveness performance reviews have a reduced ability to learn on an organization wide basis when faced with environmental change.